Fuel for Change: Could Europe's fuel rules force Canada to clean up the oilsands?

Blog -
Oct. 26, 2011 - By Marc Huot

Imagine you're a toy manufacturer, shipping your product overseas. One of your customers tells you that they're reducing the amount of lead in their toys and studies show that your products are among the worst. They ask that you reduce the toxic content of your product or they'll stop buying it.

What do you do? You can call the production manager and fix the problem, or complain to your customer about the quality of your competitors' products. As cunning as the latter option may seem, this is how Canada is currently reacting to proposed European rules to reduce greenhouse gas pollution from transportation fuel production.

This week I'm in Brussels with colleagues to discuss the merits of Europe's Fuel Quality Directive (FQD), and its assignment of a greenhouse gas pollution value on oilsands bitumen. The FQD is part of the European Union's commitment to a 20 per cent reduction in carbon emissions by 2020, and to help fulfill this goal, suppliers of transport fuels are obliged to reduce the lifecycle GHG intensity of their products — gasoline, diesel, and jet fuel - by six per cent by 2020 relative to 2010.

To achieve this, the EU Commission proposes that each major fuel "feedstock" entering Europe be assigned a value for its carbon intensity, based on its lifecycle emissions from production through to end-use combustion.

While Canada and Alberta are lobbying against the recent EU Commission decision to assign a specific value for bitumen, sending federal Natural Resources Minister Joe Oliver to Paris and London last week to persuade the EU to rethink the directive, we think that Europe should stand firm, for the following reasons:

Oilsands shouldn't be given a free pass.

Concerns that the FQD is unfairly discriminating Canadian oil are unfounded. The proposed value for bitumen isn't based on geographical location, but rather on its feedstock. This means transportation fuels that are produced from different types of feedstock are categorized separately. For example, biofuel produced from sugar cane gets a separate value from biofuel produced from wheat. Similarly, fuels produced from shale oil and fuels produced from natural bitumen are in a different category from conventional oil. This is a logical first step to take when looking at different carbon intensities of fuel.

Minister Oliver has recently argued that the FQD, "actually penalizes countries and companies that provide transparent, independently verifiable data." However, rather than defending the oilsands industry and the Government of Canada from market pressures for low-emissions fuel, Oliver should be advocating that the FQD require transparency and GHG accounting at the outset, raising the bar for all countries that export fuel to Europe.

While the vast majority of commercial oilsands development is currently happening in Alberta, with current production at approximately 1.6 million barrels per day, other reserves exist globally in countries such as Venezuela, Madagascar, the Republic of Congo, the United States and the Russian Federation. Some of these resources are currently being considered for development and would get the same default value placed on the fuel they produce.

The FQD rewards oilsands producers that reduce the GHG emissions of their product.

Some commentators have argued that the FQD will penalize oilsands producers that do clean up their GHG emissions and come in below the average. This is not true. In fact, oilsands producers that have a GHG emission intensity lower than the FQD's default value can receive their own value by reporting their actual emissions.

More and more oilsands operators believe that they can get their oilsands production emissions down to a level competitive with conventional oil. This has yet to be demonstrated, but if it is true, why then, are the Canadian government and oilsands companies lobbying so hard against a directive that allows them to prove that they can compete in a low-carbon future?

The proposed target for bitumen is based on good science not speculation.

The oilsands are a high carbon source of energy and independent analysis shows that even the cleanest oilsands fuel is dirtier than 98 per cent of conventional oil entering Europe. The value of 107g CO2/MJ stems from a peer reviewed study from Stanford University that was commissioned by the EU to provide a comprehensive analysis of the GHG intensity of crudes entering Europe. The study found that the most likely, or "average," value for oilsands is 23 per cent more GHG intensive than the average for conventional crude imported into the EU.

In short, Natural Resources Minister, Joe Oliver's comment that, "there has not been a comprehensive scientific study of the greenhouse gas (GHG) intensity of crude oils currently used in the European Union," is plain wrong.

The proposed values for bitumen in the EU's FQD send a signal to fuel suppliers that the marketplace is now considering the carbon intensity of various fuels. Instead of lobbying European countries and downplaying the significance of GHGs from the oilsands, Canadian decision makers could do better by implementing regulations to drive down emissions from the oilsands sector so that it can comply with the FQD's new proposed rules.

After all, had our federal government acted swiftly to regulate oilsands emissions almost two decades ago, its fuel might be meeting customer demand for low carbon products today, rather than being a target for criticism.

Larry Frederick — Oct 29, 2011 - 11:58 AM MT

Your conclusion that the Fuel Quality Directive can produce change is not in question. Using policies to drive change is commonplace, and simple.

The problem is that the EU is narrow-minded, and they are focusing on one variable when there are many. In your toy example, you focused on lead being of paramount importance in our selection of a toy. In your zest to remove lead, you have missed a bigger opportunity. What about the environment, energy use, water pollution, child labour, labour unions, the use of recycled materials, or freedoms within the country of origin? The focus on the elimination of lead in our toy products might improve our health, but it does nothing for the manufacturers in their home country.

If the EU wishes to impose standards to cause change with oil producers, GHG emissions are only one variable that should be considered.

We need other variables to be addressed to drive change in the countries of origin.

Let's include a variable that addresses the cost to foreign powers to keep the shipping lanes or pipelines open until their oil crosses an international boundary. If they supply their own protection to make certain that the oil enters the world market, no penalty; but if they require the US to protect their oil supply, then a penalty should be applied.

We need a variable to encourage change in women's equality. If the producer country allows women to vote, work and drive, no penalties are applied; if they don't, then a penalty is applied.

We require variables for water quality, animal protection, land reclamation, indigenous and local involvement, open access to the resources, education and health for populations, whether terrorist organizations are allowed to operator on their soil, freedom of their populations to practice religions of their choice, and a variable that describes whether governments outlaw payments to officials to conduct business. The list is long on how we should we should incentivize countries to operate if they wish to sell oil on the international market.

Canada and the oil sands are easy targets for policies that will drive reductions in GHG emissions. Work is underway to improve the production from the oil sands in many areas including GHGs. It is safe for EU politicians to impose rules on an oil source that they don't consume anyways, and then claim that they are making a difference. As progress continues to be made on production from the oil sands, including GHG reductions, they can even claim victory for the policy they put in place.

It is easy for their politicians to point the finger at a safe target who will not retaliate with threats. The oil sands will continue to be produced, and technology for improvement will be continually introduced. I challenge the EU to show real leadership and impose higher standards on other facets of oil production which will actually make a real difference in the lives of people.

Marc Huot — Nov 08, 2011 - 11:50 AM MT

Hi Larry,
Thank you for the feedback.

I agree with you that in the long term factors in addition to greenhouse gases must be considered in efforts working towards cleaner and more sustainable transportation energy. This is particularly true for oilsands. In our report “Solving the Puzzle” (http://www.pembina.org/pub/2210), we developed a set of 19 recommendations that would help clean up oilsands in terms of their impacts on the climate — but also impacts on the air, the land, and water.

However, I think we need to acknowledge that no one policy is likely to be successful at addressing all of these issues simultaneously and promptly. In the case of the EU Fuel Quality Directive, a deliberate decision was make for the scope of the policy to focus on addressing the upstream greenhouse gas emissions from producing fuel. Given that global climate change is considered one of the biggest challenges facing humanity, particularly in the developing world, the EU should be congratulated for tackling this head on. I don’t see any reason for protesting this effort simply because this specific policy doesn’t address some of the other factors. Presumably other initiatives can and possibly are already working on those other issues as well.

The question of whether or not oilsands are an easy target is debatable. I think that the unwillingness of the federal government to regulate oilsands greenhouse gas emissions, has allowed the oilsands industry to continue operating with a high average greenhouse gas intensity compared to conventional sources of crude. I would challenge your statement that “work is underway” to improve oilsands greenhouse gas intensity in Canada. There is no evidence of improvements in average greenhouse gas performance over the past five years.

Regulations for the oil and gas sector have apparently stalled (again) and as our “Oilsands and climate change” briefing note, shows, improvements in average oilsands greenhouse gas intensities may actually increase as the proportion of in situ oilsands grows. To me, it seems clear that we are failing to create an incentive for technological innovation within Canada, so I welcome the efforts of others around the world to implement policies that will help us move away from dirty sources of fossil fuels towards more sustainable transportation energy alternatives.